Monday, September 21, 2009

Price!

With things heating up, it was time to establish a maximum price. There were, of course, two primary limiting factors: down payment and monthly payment. We decided that 220k was our maximum price. Five years earlier this would have relegated us to looking for one-room shacks with three walls. However, the extremely depressed condition of the market meant there was a lot of vacation-home inventory in our price range. This is where several years of research and looking at properties paid off. We knew what we could expect to find, and what our price would purchase. Sadly, the large number of vacation homes on the market was a result of many people overreaching. They purchased the most home the bank would allow, which left them little room to deal with any type of economic turmoil.

A vacation home should not be an undue burden to a family's budget or lifestyle. All the members of the family should feel that the second home did not lower their standard of living. If a vacation home is going to result in a family living paycheck-to-paycheck, the vacation home should wait until finances are more secure. The inevitable result of reaching too far to get a vacation home will be stress and unhappiness. Renting that cabin or beach house for a week will probably yield just as much satisfaction for everyone.

How much is too much? A rough gauge is that a vacation home should not take more than 10% of a family's after-tax income. However, there are variables that can significantly raise and lower this figure. The higher the income the larger the percentage a family might be able to afford. If the couple is already burdened with a high mortgage and other mandated monthly expense, this would certainly lower the percentage. Further, if the family has a large cash reserve that was held back from the purchase, this might also raise the percentage of income that could be invested in a vacation home. In all cases, prudence she be a word that is in the back of the mind of any couple considering a vacation home purchase.